"Shiller PE ratio for the S&P 500. Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio, or PE 10. Data courtesy of Robert Shiller from his book, Irrational Exuberance"

This ratio appears to be almost peaking for a time span of the past 135 years with only the great depression, the dot-com bust and the great recession being historically greater. And the great recession was really not much greater, more like about the same.

This is one reason that our family has chosen to not go higher then 45% stocks for our AA. It seems much more likely that we will see stock market declines in the future.

But, we certainly won't go less than 45% stocks as we're not market timers and who can predict the future?

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This is one reason that our family has chosen to not go higher then 45% stocks for our AA. It seems much more likely that we will see stock market declines in the future.

But, we certainly won't go less than 45% stocks as we're not market timers and who can predict the future?

Will you increase your stock allocation when CAPE eventually goes lower? If the present PE10 is what is keeping you from increasing your stock allocation now, then many would consider you a market timer. And I don't see any shame in that--It's not like you are daytrading, and CAPE-based trading strategies do have a history of improving the ration of volatility to gain when compared to static allocations. Like you, I couldn't see going between zero equities and 100% equities based on PE10, but I'd be okay with adjusting within my overall equities "comfort range" (maybe 40% to 75%) based on these indicators. But anyone doing this has to be prepared to be "wrong" for a very long time.

I think there are currently just as many reasons for stocks to go up than for them to go down. I'm maintaining a 60-40 target. I'll stay here until the next bear market and then ratchet to as high as 80-20... then eventually back to to 60-40. Guess that's my comfort zone.

I have a kind of "rule of thumb" that I call 15-30-45. This rule says if the S&P 500 falls by roughly 15% from it's peak, at any time, I would bump up my AA by 5% additional towards stocks, making the AA 50%/50%. If the S&P continues to fall by another 15% (down a total of 30%) from its peak, I'll go 55% stocks. If it falls the last 15% (down 45% from it's peak), I'll add the last 5% so that is when I'll finally be at 60% stocks AA.

I have a kind of "rule of thumb" that I call 15-30-45. This rule says if the S&P 500 falls by roughly 15% from it's peak, at any time, I would bump up my AA by 5% additional towards stocks, making the AA 50%/50%. If the S&P continues to fall by another 15% (down a total of 30%) from its peak, I'll go 55% stocks. If it falls the last 15% (down 45% from it's peak), I'll add the last 5% so that is when I'll finally be at 60% stocks AA.

I hope this rule never comes into play.

Why are you reluctant to call this "buy on the dips" (and, presumably, sell on the rises) strategy "market timing"? I'd say it fits the popular notion of DMT. I'm more comfortable with PE10 based approaches than with techniques that depend on variations from recent (relative) peaks.

Yes, I agree, I should have called this a "buy on the dips" and also, definitely sell on the highs.

I would include a bit of "hysteresis" to allow the volatility to improve the results when it comes time to adjust back towards the 45% stock/55% bond AA. IE, trigger the stock adjustments back down after the market recovers by certain %. I'm not sure yet how I would do this, but I know that it is important to plan this strategy ahead of time with fixed set points, etc. Otherwise the strategy will deteriorate into some sort of emotional market timing strategy which won't work.

I want to move to 80% stocks eventually (now at 40% or so), but will only shift allocation on dips.

Apart from a threshold (roughly -20% from peak) I also employ fixed windows. I only shift asset mix in fixed periods twice a year: mid december and mid june.

Takes a bunch of emotion out of the process, as in that 90% of the time I am not "allowed" to make any decisions. Also focuses more on the long term. This is excepting when valuations reaches a pre-defined alarm threshold, but we're a long way from that.

I will be the first to admit I do not know how to accurately measure whether stocks are expensive or not. However, I have never seen anyone get it right on a consistent basis. I think they are guessing. I can do that myself. Eventually they will be right. What about all the times they are wrong? So the answer to me is nobody knows nothing. Everyone knows there will be another bear market. Can anyone say when? I think not.

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Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. Charlie Munger

I have a coworker who cashed out his investments in 2008 as the S&P500 was on its way down from 1200 to about 700. He never got back into the market and has been sitting in all cash ever since. That is what I would call a "market timer" and certainly isn't what my DW and I are doing.

We're have been in the market this whole time and all the above discussion about set points on when to add to stocks is hypothetical and hasn't been acted upon for many years. So I think I would call us "buy and hold" still.
At most, one might say that we are "enhanced" index investors.

The whole point of this thread was that we are comfortable with only 45%/55% in stocks/bonds and will keep that ratio relatively constant until we pass on. A historical average of this ratio of stocks/bonds earns about 6% return overall and this smaller amount is enough for our retirement. The substantially reduced volatility of our investment mix is the benefit of a lower stock/bond investment mix.

The best counter to a declining market is long term treasuries. We have a chunk of those as part of our bond portfolio.

with bonds at 2- 3% ,cash at zero to 1% and dividends at 2% which typically represent 1/3 of the markets gains you are looking at potentially a far lower return going forward for likely at least 5 years . a 50/50 mix looks to be in the 3% -3-1/2% range .

with 2% dividends do you really think we will average 10% the next 5 or even 10 years at these valuations ?

I didn't see anyone claiming returns would be 10% over the next 10 years. Retirement is a long game, and being able to make it through periods of low returns (maybe a decade or so) is part of it. Also, your later points are more relevant to choosing a withdrawal rate than to choosing an asset allocation (or a strategy for shifting that allocation, which is where the discussion started).

if not then it is a moot point . if you are or will be then it is a very important consideration . the first 5 years can effect your outcome by quite bit and by the 15th year the entire outcome is already written in stone .

The original reason for posting was that the Shiller CAPE ratio is historically high. I've created a picture that shows possible losses for a 45% hit in stocks vs AA. This includes the negatively correlated affect that is likely to occur in bonds, especially with long term bonds. I've modeled these gains as 10% for long bonds and 3 % for mid bonds.

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